How does that BRRR "Repeat" work exactly?

Question

I took out a $100,000 heloc on my primary residence (that I am STR house hacking to great success).  I used the heloc to buy my second vacation rental, which is also cash flowing after 9 months in.  I'm eager to recycle that original heloc and repeat the process!  Do I have to wait for the value of my second rental to increase 20% so I have enough equity to cash out refinance and reinvest?  At the expense of higher monthly payments and a higher interest rate?  Would that be the best strategy?  I'd love to hear your thoughts!

Grant Thompson · Answer

It depends how much equity you have in your second vacation rental. Most people calculate an after rehab value before acquiring a potential BRRRR, after rehab is complete and the property is rented out then if the ARV is accurate it is possible to immediately refinance the property. Hope this helps!

Steven Goldman · Answer

There are two components to successfully BRRR successfully. First, you must find properties which can be significantly increased in value by rehabilitation. Second, you must know the ARV of the property before you purchase it, to determine that the refinance will recover most if not all of your investment.

Using a HELOC to finance the down money to buy turnkey properties, will require patience and a keen evaluation of the market in order to get sufficient appreciation in a few years to allow you to pay off the HELOC and refinance the purchase loan.

BRRR by its definition is a Buy, rehab, rent, refinance, repeat. Without the rehab. you have no value added to allow you to cash out your investment Good luck.

Lucas Martinez · Answer

@Greg Seivert You forgot the second “R” in BRRRR. In order to force appreciation and not have to wait for market appreciation to build your equity, you have to find a property that’s distressed. Otherwise your initial investment will continue to shrink by about 20-25% per property, or you’ll have to wait for market appreciation before you Refi , which would take years depending on the market.

Zachary Beach · Answer

@Greg Seivert you are not doing a brrrr you are doing a br and later maybe if the market goes up a rr. Nothing wrong with that strategy it’s a great strategy but it’s not a brrrr. If your place is up 20% when you refi you will likely only get 80% or less plus will also likely have points appraisal lending fees and title costs. If you house is 500K and it’s up 20% to 600K at 80% they will only loan 480k only 30k more than your current mortgage you will have appraisal and lender costs and title for cash out 5-10k plus most likely points maybe 5-10k. So you may be looking at paying 10-20k to get 10-20K actually out so 30-70% on the money you pull out plus interest and payback on an extra 30K plus 80% ltv is often a higher interest rate at 75% you would not be able to pull any money out with a 20% increase. At 40% increase that would change things or if the interest rate would go down a .5 percent or more or something like that. You need to look at you numbers.

Account Closed · Answer

@Greg Seivert

“No rehab necessary” = a break in the “r” chain. If you’re not forcing a value bump you’re at the mercy of the long term market trends. Happy investing

Greg Seivert · Answer

@Alexander Puentes I live on the Big Island of Hawaii.  House hacking opened doors for me to start investing, so I highly recommend it.

Alexander Puentes · Answer

@Greg Seivert I am happy to hear your house hacking is working out great for you! I am just getting started with all this REI and I was curious about what market you are in that is appreciating so well?

Franklin Romine · Answer

A sound purchase and appreciating market is key when using this strategy.

J Zev J. · Answer

@Greg Seivert - If you're doing the brrrr, normally you'd want to make that second purchase with equity already built in so you don't have to wait for it to increase in value.

Greg Seivert · Answer

Thanks Grant!  It was in good condition when I bought it, so no rehab was necessary.  I used the heloc for a down payment, so I'm basically getting 100% financing.  If I understand correctly, it looks like I'm waiting for the market value to increase about 20% in order to pull out equity.  In this market, that may not take too long.

How does that BRRR "Repeat" work exactly?

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